India: Delisting Process Continues To Remain A Pain

In March this year, SEBI amended certain provisions of the
delisting regulations with a view to simplify and expedite the
whole process of voluntary delisting of securities but while doing
so it has unwittingly tinkered with some vital provisions which
have actually become a new headache for listed entities seeking
delisting.

Provision for determination of floor price is the most important
provision in the delisting regulations. Under the un-amended
regulations, the floor price was required to be determined with
reference to the trading on stock exchange during the period of 26
weeks or 2 weeks preceding the date on which the stock exchange was
notified of the board meeting in which the delisting proposal was
considered. This provision has been amended now to provide that the
floor price shall be determined in accordance with SEBI formula
prescribed under SEBI takeover regulations. Devil lies in this
cross reference as SEBI pricing formula based on trading under the
takeover regulations is linked to public announcement which in case
of open offer is the first act on the part of acquirer to declare
his intention to acquire shares or control of the target company.
As against that, the first act to disclose the promoters'
intention for proposed voluntary delisting offer is the
company's board meeting at which such proposal is considered
and that is why trading prior to the date of board meeting was
considered for determining floor price under the un-amended
regulations. Public announcement in the case of voluntary delisting
is required to be made much later i.e. after receipt of
in-principle approval from the stock exchange and hence, if
determination of offer price for delisting offer is linked to the
public announcement the same will get artificially inflated during
the period between the company's board meeting and the public
announcement.

It is pertinent to note that any proposal for voluntary
delisting is a price sensitive information which immediately
affects the trading volumes in the company's scrip. Hence, if
proposal for delisting is notified to the stock exchange after
board meeting and determination of floor price is linked to the
market price during 60 trading days prior to the public
announcement, then the scrip, in all probability will experience
price manipulation during this interregnum period between the board
meeting and the public announcement. Further, if the floor price is
not linked to the company's board meeting then the promoter
would find it very difficult to assess his financial capability to
acquire the shares under the delisting offer as the market price of
shares may substantially go up during the period between the board
meeting and the public announcement. Against this back drop, SEBI
is required to take immediate action to link floor price to the
trading before board meeting instead of public announcement.

Related with the public announcement there is another recent
amendment which needs prompt attention of the market regulator.
Delisting regulations provide that the public announcement shall
specify a date, being a day not later than 30 working days from the
date of the public announcement, which shall be the "specified
date" for determining the names of shareholders to whom the
letter of offer shall be sent. The letter of offer as per the
un-amended regulations was required to be despatched to the public
shareholders within 45 days from the date of the public
announcement i.e. after specified date.

Pursuant to recent amendments the said period of 45 days has
been reduced to 2 working days but no corresponding change with
regard to "specified date" has been made. Obviously,
letter of offer cannot be issued before specified date and if the
specified date is 30 days from the public announcement, letter of
offer cannot be issued within 2 days from the public announcement.
This contradiction in the newly amended provisions also needs to be
rectified immediately.

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Let us do an exercise. You may not have bothered so far, so you could do it today. Have a look at the backside of your Drycleaner's slip for the garments you have given him for laundry or dry cleaning.

The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.

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